The Mail on Sunday today launches a campaign aimed at bringing to an end the discrimination retail investors face when successful businesses list on the London Stock Exchange.
We believe it is wholly unacceptable that most companies which list their shares on the UK stock market exclude small investors from participating in the initial public offering (IPO).
It flies in the face of the country’s reputation for embracing small shareholders – one given initial impetus by the successful privatisation of tranches of State-controlled British industries in the 1980s and more recently enhanced by the creation of wealth platforms, designed to enable people to buy and sell shares at the press of a button on their computer or phone.
It also damages the UK’s global reputation as a raiser of share capital for leading edge companies. But most importantly of all, it is inherently unfair because it has created an uneven playing field that allows big institutional investors – typically global megabanks – to make financial hay at the expense of retail investors.
The objective of our Fair Play for Small Investors campaign is a simple one – for ALL companies that list shares in the UK through an IPO to be required to offer a slice of shares to retail investors. At a stroke, it would eradicate the discrimination that currently exists, allowing small investors to enjoy the same financial benefits – or endure the same losses – that big City institutions get from being shareholders right from the very beginning.
Our campaign, provoked by the fact that only ONE of the biggest 15 IPOs this year (Deliveroo) has incorporated the retail investor, has drawn widespread support – even from companies which normally are reluctant to speak to us.
Chris Hill, chief executive of wealth platform Hargreaves Lansdown, says retail investors ‘should not be unfairly blocked from taking part in IPOs’. He adds: ‘Retail investors improve the efficiency of markets, helping to create deeper and more liquid pools of funding.’
Andy Bell, boss of rival platform AJ Bell, says the ‘growing number of engaged retail investors in the UK should be viewed as an attractive source of capital for any company considering an IPO’.
Bell believes most retail investors are long-term shareholders who invest via a pension or Isa. As a result, they ‘help create a healthy and diverse shareholder base’.
Sometimes, he adds, shareholders will also be customers of the listing company which can help generate further brand loyalty and deepen the customer relationship.
When AJ Bell completed its own IPO in late 2018, a fifth of the shares went to customers.
Bell says: ‘From experience, we know that companies are dissuaded from including retail investors in their IPO by their financial advisers. This is because it is easier and quicker for the advisers to place shares with the institutions that they know.
‘This ignores the benefits of shareholder diversification, brand awareness and customer loyalty that can be gained by ring-fencing a portion of shares for retail investors in an IPO.’
Richard Wilson, chief executive of wealth manager Interactive Investor, also supports The Mail on Sunday’s campaign. He says a free market is being ‘choked’ by financial institutions putting the interests of corporate investors before those of retail investors. ‘It’s both blatantly unfair and absurd,’ he adds. ‘Investors can buy complex financial instruments such as contracts for difference all day long. But when it comes to investing from the word go in some of the country’s – the world’s – most exciting companies, they’re excluded. How crazy is that?’
Technology platform PrimaryBid is currently trying to help ordinary investors access IPOs by encouraging the issuers behind the offerings to include them.
It is also at the forefront of discussions with the Government and the City regulator on how IPOs can be made more retail investor friendly. Discussions, by the way, that may in time result in more retail-friendly IPOs, but which are unlikely to result in our campaign’s objective – for ALL IPOs to offer shares to ordinary investors.
Like The Mail on Sunday, PrimaryBid believes retail access to IPOs should be a ‘fundamental right’. Mike Coombes, head of external affairs at PrimaryBid, says: ‘The current system is unjust. It’s either an initial public offering or it isn’t – and most aren’t. Markets are either public or they aren’t. This is all about public inclusion.’
Last week, we got PrimaryBid to run some numbers on the biggest IPOs that have listed on the London Stock Exchange this year – and which have excluded retail investors.
Most of the names are familiar – the likes of shoe maker Dr Martens; cybersecurity specialist Darktrace; Danish consumer review website Trustpilot; internet based-greetings card business Moonpig; and cosmetics company Revolution Beauty.
It looked at the 15 biggest listings by market capitalisation – see table opposite. It then compared the price that the shares were listed at (the price that supporting financial institutions paid) against the price they opened at on the first day of trading (in theory, the price retail investors could first buy them at).
Of the 15 listings, 11 had opening share prices ahead of the listing price. In other words, retail investors keen to get a slice of the action as soon as possible were forced to pay over the odds – sometimes by a huge amount.
Some 40 per cent in the case of both Big Technologies – famous for its Buddi personal alarms – and Darktrace; 29 per cent (video games specialist tinyBuild); and most recently Oxford Nanopore where the shares opened at £5.45 against a listing price of £4.25.
Coombes says: ‘Nanopore is one of the UK’s biggest ever IPO pops [where the initial share price is way above the listing price]. It should be a good lightning rod for greater discussion around investor access and inclusion in IPOs.’
Dan Lane, senior analyst at investment platform Freetrade, is a little more colourful with his words. ‘Seeing massive value fluctuations after an IPO comes to market is a kick in the teeth,’ he says.
‘It tells us nothing about the company and everything about how exclusionary the institutional tactics are just before and after a listing.’
SO WHAT SHOULD HAPPEN NEXT?
The Government is looking at ways of making IPOs more inclusive – a consultation on the issue ended last month. Although this is welcome – and could, for example, result in the simplification of the prospectuses companies are required to issue if reaching out to retail investors – it is not enough.
Interactive Investor’s Richard Wilson agrees. He says such ‘cosmetic’ changes are not the solution – what is needed is legislation that puts a requirement on all listing companies to set aside a slice of shares for ordinary investors.
Such a ‘quota’ system operates well in France and Singapore – and Wilson says there is no reason why it can’t work in the UK. It’s why we back such a move. Fair play for ALL share investors.
Our campaigning will not stop some companies going ahead with IPOs in the coming months that exclude the ordinary investor. The likes of gym operator PureGym; electric vehicle charging firm PodPoint; food box specialist Gousto; and even Wilson’s Interactive Investor (he wouldn’t confirm it) are all rumoured to be looking at IPOs.
Some of these companies will do the decent thing and embrace all investors – and we will applaud them to the hilt when they do so.
But others won’t because they don’t have to. We will criticise them – and rightly so. And we will continue to criticise until the Government – a believer in wider share ownership – wipes away this injustice. Shares for all.